PAEI code and Strategy Development

PAEI, as I have claimed many times, is a code. It is the “DNA of organizations”. It can be used to analyze managerial styles, organizational structures, decision making processes, and reward systems. It can be used to predict the sequence of problems organizations will have along their lifecycles in the future.

PAEI can be also used to design corporate strategy by balancing the four roles for success: Which roles are the organization’s strengths and which are its weaknesses and thus what should management focus on for the future?

Notice that this follows the code of PAEI and also that NO ONE COMPANY CAN BE THE BEST IN ALL FOUR. It costs money to do each role and thus can be prohibitively expensive in the aggregate.

Like the myth of the Ideal Executive, there is no ideal or perfect company, performing all the roles at the highest possible level.

Southwestern Airlines focuses on better service than the competition (P). Dell is characterized by cheaper costs (A). A higher rate of innovation (E) is what 3M relied on to beat the competition, and a great organizational culture (I) made HP stand out in its early days.

What will your strategy be?

What do you naturally excel at, meaning what has developed organically thus far, that distinguishes you from the competition. Is it still relevant? Where is your industry on the lifecycle? If it is on the aging side of the curve you must watch your costs very carefully. Stop investing in innovation that has declining marginal utility and instead invest in services.

Take the semiconductor industry as an example in this regard: Innovation has hit the wall because we are at the end of our knowledge of physics. We cannot make our chips any smaller or more powerful. For that we need new theories of physics. Add to this the fact that the end user is not capable of catching up with what we have innovated so far. In other words there is a glut of information that end users cannot handle. The industry needs a period of “cooling off’ until the end users catch up with what is available now, and until new physics theories are developed. So what do we DO now? We must cut (E) and increase (A): improve cost structure and move to (P) to offer services in addition to products.

What about Dell? In their case the competition has caught up – notebook computers are getting cheaper and cheaper. On the margin Dell apparently cannot improve its cost structure (it’s “A”). What has made them successful in the past might be the reason for failure in the future. So what to do then? Move to services (P) or to innovation (E), like expanding to include tablets or multi use devices. This move requires attracting top level creative people which Dell probably did not attract in the past since they were squeezing costs to the bone. To be innovative a company needs human capital, which wants a different culture than the cost- cutting efficiency-oriented one. Cut (A) and increase (E) and (I).

How about Southwestern Airlines? It will take a long time for the competition to emulate their culture. There is little danger on that front. But this culture can still be capitalized on. How? By acquiring other airlines and colonializing them with the culture that gives Southwestern the competitive advantage.

To strategize for success: analyze the industry; analyze the competition; analyze what made you succeed or fail in the past in PAEI terms; redesign your strategy in PAEI terms for the future.

Ichak, this is a brilliant, concise analysis of the practical application of your methodology that should be understandable by anyone with half a brain. Expand on this, using more examples to turn it into a business school bible.

Ichak, it seems OK to watch costs, stop investing in innovation (E) that has declining marginal utility and instead invest in services (P) for industry on the aging side of the curve. For growing side it is opposite: to create innovation strategy (E) first, second – best organizational culture that attracts and retains better human capital (I) and third – systems for short-run control (A) and then – P (Starbucks).

It’s a good article. Thinking in structured manner like this helps to have a clean and clear thinking about future.

Since I am new to your methodology/style I can’t remember or imbibe your terminology like PAEI. Can you please put a footnote or write somewhere as to how you decided on these letters to represent four ways of looking at an organization?

Fantastic article! Mind-opener…I’m an ardent fan of you and every time I read something new comes into my mind..it starts thinking..you are SIMPLY BEST…Please do keep posting and share your experiences.
Once again thanks very much.

An excellent other new focus of PAEI.It is a very useful CODE for analysing different things: pepele and companies. It was very useful for me when I was consultant
Many Thanks for your contribution, Ishack
Paco Cal

It was long time ago when for first time I read one of yours books. It was very easy to understand the content because of very easy style of expressing. In all yours books and articles there are a lot of real examples and everything is explained thru prism of your methodology.

Thanks a lot for inspiring me to change myself and my company. I will try to transfer my extremely positive experience of your methodology and approach to all my friends and to anyone, to change our business environment in our small country.

PAEI is very useful. About Dell analysis I want to add that in Mexico Dell is starting to get more E. But what I think is that they are not being “E” by the industry but by imitating what the competence is doing. As an example: Dell wants to achieve Mexico´s market by not just decreasing the cost against their main competitor that is HP but also by offering what HP is already offering you: Servers. The reason why we en TYA did not close with Dell it is because they don’t have their “I” Style developed which is Customer Service. In the other hand HP in Mexico has developed the “P” and “I” in Mexico. But they are the most expensive company for buying computers.

I like to analyses people, process, and structures with the PAEI method. It can give you an easier way to solve conflicts.

for those of my readers who do not know PAEI and the rest of my theories of management please look at www. adizes.com for my books and start reading. good introduction to Adizes is the “How to solve the mismanagement crisis ” book

Dear Ichak,
Not only one can use the PAEI code to identify the strategy, but also to evaluate the Misssion that the strategy is trying to accomplish. The mission could be seen as having four dimensions:
Wealth (P), Knowledge (E), Power (A) and Values (I).

Dear Ichak,
In my opinion we can talk about 5 dimensions: 1. Operations management (P), 2. Expansion Management (E),3. Relation Managament (I), 4. System Management (A) and don’ forget 5. Self Management (the 5th finger, the thumb, once you have explained in a video on your web).
Your blog makes it clear that predominace of one style on the others can only be a re-action and survive on a temporary basis.The environment of competition is constantly changing. The message is to become an “agile company”, ready to change constantly. So it will be better for each company constantly to realize the “ideal mix” of the 5 styles (each requiring a cluster of well definded competencies), in each individual, each team, each department, in the organisational structure itself, and as you explained in the same video, in the board of directors also.That will make companies strong and combative in each period and situation.
I have developed a model (Flexible Dynamics) that can help to understand and to apply better the whole present-day “competecy management” approach.The big 5, PAEI, leadership model of Quinn, even the balanced score card of Kaplan are all “universal” and “congruent”. They math perfectly which each other. Read my book:”Kundig competent.Iedereen, altijd en overal”.2008. Dutch Kluwer Editions.
I am a Belgium industrial psychologist and an early fan of you, fan of Adizes, PAEI and the live curve of each company. Great model that explains hard reality.

Dear Ichak,
I am an early enthousiastic adept of PAEI and the life cycle of each company or organization.Great model that reflects hard reality. I am a Belgian industrial psychologist with an important experience in recruitment, training & change management.

i can just say , PAEI is amazing tool for everything from small to large size and zone,
for example, in my country, iran, one of my master, had used PAEI for prediction govern policy at 2002 for 2011, and it is work without mistake!
i admire your methodology and i try to promote it in my culture and industry in my country

Your last statement “To strategize for success: analyze the industry; analyze the competition; analyze what made you succeed or fail in the past in PAEI terms; redesign your strategy in PAEI terms for the future.”

– Is absolutely correct. I have one more point to make, within the same company, as the company/organization is going through the life cycle, we need to analyze and redesign the PAEI for each stage to get to Prime or stay in Prime!

“PAEI can be also used to design corporate strategy by balancing the four roles for success”.

My question will be what does “success” mean?. If it is to beat your competition, then depends on the industry that a corporation is in, a corporation does not need to be best or perfect, just a bit better than their competitors.

Is Southwestern Airlines competing with Delta, American, United or Lufthansa??? I don’t think so thus buying any one of them and trying to “colonialize it” would work???? not necessarily. The reason is that in most sections of the world USA included government restrict free and “potentially wild” competition so Southwestern Airlines can not acquire all the domestic airline routs in America and restrict the other airlines to international airways.

As far as Dell, their problem is that they compete with off shore companies that have lower cost structure, and unless they can prove superior value they lose in the commodity war. Getting innovation and “other services” without ditching their core business may become an illusion. As IBM learned in the hard ways you cant do both.

I agree that PAEI is the DNA of a corporation and should be considered in setting the IMPLEMENTATION strategy (How / Who / When), however determining the What is a different ball game.

Finally I would argue that there is a “4th dimension” to PAEI and that is the balance among these DNA building blocks. that balance makes the difference between Holly (the sheep) and Holy s–t.

Dear Ichak,
What about “game changing” business? Could be established or new companies that introduce completely new ways of meeting market needs. I can think of any industry, but lets say a new university that get students because the content is highly relevant and the partners (in different programs) are THE authorities in the field (I), the student service and response time is excellent (P), the delivery system and “accessibility” is innovative (E) and the value-ratio (cost/price) of all this is VERY competitive and probably the best in the industry (A). The “industry” (competitors world wide) fail completely in all of the above. Which one is the most important and what should we focus on?
Kjetil

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Please note:

The insights presented in these blogs are the personal insight of Dr. Ichak Kalderon Adizes and do not necessarily express the opinion or position of the Adizes Institute or its staff individually or as a group.

DISCLAIMER: The insights presented in these blogs are the personal insight of Dr. Ichak Kalderon Adizes and do not necessarily express the opinion or position of the Adizes Institute or its staff individually or as a group.